One 97 Communications Ltd Paytm - IPO Update

Paytm (owned by One97 Communications Ltd) is likely to be the biggest IPO in Indian stock market history. The company has already filed the draft red herring prospectus (DRHP) with SEBI for its proposed Rs.16,600 crore IPO and is awaiting SEBI approval for the same. The IPO consists of Rs.8,300 by way of fresh issue and Rs.8,300 crore by way of offer-for-sale.

Post the SEBI approval, Paytm will file the RHP with the Registrar of Companies (ROC) before the actual issue. While the actual date will be finalized only after the DRHP approval by SEBI, it is tentatively expected during the second half of August.

About One97 Communications Ltd Paytm

The company was promoted by Vijay Shekhar Sharma way back in 2000 and offers a complete digital payment ecosystem in India. Apart from offering its own proprietary wallet and bank account, The company also facilitates commerce, bill payments and bank to bank transfer of funds on its platform, including UPI transfers.

As of March 2021, it has a client base of over 33 crore who transacted on the platform with 2.10 crore registered merchants. In its last round of funding in 2019, the company was valued at $16 billion and it is expected that its valuation post-IPO would be in the range of $25 billion to $30 billion making it among the valuable digital properties in India.

How Paytm transformed digital money in India

Digital money caught on in India with the rise of mobile connectivity, smart-phone usage and superior broadband speeds but the big trigger came in 2016. The demonetization process initiated by the Modi government in November 2016 resulted in a sudden scarcity of physical money and Paytm became the default digital payment wallet for Indians. 

While the promoter, Vijay Shekhar Sharma holds 14.61% in Paytm, other major investors include marquee names like Softbank, Alibaba.com, Antfin Netherlands and the redoubtable Berkshire Hathaway. 

How do the financials of Paytm look

Paytm has been making net losses over the last 3 years, although the net loss has been narrowing with a gradual fall in the promotional expenditure. Here is a quick summary.

As is evident from the above table, losses have clearly narrowed even as revenues took a hit due to COVID in FY21. The fresh issue proceeds of Rs.8,300 crore will be mainly used for acquiring customers, strengthening the payment system, strategic partnerships, inorganic acquisitions and for higher-end technology investments.

How to approach the Paytm IPO?

Most digital IPOs would be enthused by the response to the Zomato IPO, which was subscribed over 38 times despite being a Rs.9,375 crore IPO. That reassures the markets that the Paytm IPO size should not pose a major challenge. On the financial side, Paytm has been narrowing losses through lower promotional expenditure.
But the bigger value add is the intangibles of 33 crore customers and 2.1 crore merchants. Paytm has built the ecosystem and can keep adding plug-ins like Paytm Mall, Paytm Money and many more to leverage its customer franchise. It is when the network effect kicks in that the business will actually start to look appealing.